Nasty, but no need to panic

Last week, US markets were off between 2-5% on the week, while Tokyo was down 4% this morning alone.

Jeremy Gardiner, director, Investec Asset Management says that this latest batch of jitters follows on from weakness experienced roughly a month ago, but ironically, the sentiment responsible for the weakness a month ago was exactly the opposite of the sentiment responsible for the current weakness.

A month ago, markets were spooked by the fact that US growth seemed to be too strong, that the economy was accelerating and that rates would therefore rise faster than expected.

A month later, after a couple of earnings/economic disappointments, markets are now worried by the fact that US growth is weaker than previously expected.

The bottom line is that developed markets, particularly the US, have run ahead of themselves and a mild correction was necessary.

Last week, the S&P500 was on a historic PE of 20 and a forward PE of 16. While perhaps not expensive, it certainly isn't cheap, and markets are looking for any excuse to be skittish.

Expect therefore a mild correction on the global stage, which obviously will impact on us. However, the impact locally should be temporary, given that the JSE is on a historic PE of 15 and a forward PE of 11.5.

For good stock-pickers, even more value exists. Both our Equity and Value funds, for example, are trading on historic PEs of less than 10 times and a dividend yield of 4-4.5%.

In addition, SA earnings will continue to come through strongly this year. The consumer remains buoyant to say the least, and last week's surprise rate cut will further entrench these two features.

Expect therefore a brief pullback for us too, but solid earnings, a rampant consumer and a reasonably priced market mean that for SA investors, there is no need to bail for a while to come.